A new report “from the coalface” of super fund investing has gone some way to quantifying the cost of shonky investment management, with members potentially losing out on hundreds of thousands of dollars.
Surging equity markets have driven the Future Fund’s return higher, but its prediction that inflation will be stickier than expected has been born out and it “remains conscious of the potential for significant deterioration”.
What made the best funds outperform in 2017
Big super funds have completed another good year, despite the “lower-for-longer” general predictions, with the average balanced fund returning 10.3 per cent. Frontier Advisors has analysed what the top performers did and didn’t do.
Using the SuperRatings ‘SR 50 Balanced Index’ as its universe, Frontier’s David Carruthers and Ian Yun made the following observations from the analysis using the ‘Glide’ module of Frontier Partners Platform:
- There was no clear relationship between the return and the level of risk in the year to June 30
- The noticeable asset allocation difference of the top performing funds was their underweight to fixed income and cash, and that they were not necessarily overweight to equities
- The dispersion of returns in individual sectors among the top 10 funds was as large as 13 per cent
- There has been a positive correlation between size and performance for funds – but only if the fund is bigger than $10 billion
- Low-fee funds did not have any better (or worse) performance than high-fee funds, and
- The best performing fund over the last 10 years, REST, did not appear in the top 10 in any of the last three years.
The report published last week analysed the degree to which the funds’ performance could be explained by: the level of risk taken; asset allocation effects; sector performance; asset size; and, fees.
The top 10 funds, according to the SR 50 categorisation, for the last 12 months, with return and standard deviation, were:
- HostPlus, 13.2%, 2.6%
- AustralianSuper, 12.4%, 3.4%
- Sunsuper, 12.3%, 3.2%
- First State Super, 12.3%, 3.9%
- Club Plus Super, 12.2%, 3.1%
- Intrust Core Super, 12.2%, 3.3%
- Equip, 11.9%, 3.7%
- Kinetic Super, 11.9%, 3.8%
- Cbus, 11.9%, 3.1%
- Catholic Super, 11.8%, 3.2%.
Based on their average asset allocation, six of the funds had an overweight position in Australian equities compared to the median fund, the report says. Surprisingly, only five of the top 10 funds had a greater exposure to international equities (including emerging markets) than the average fund.
The best performed funds were fond of real assets – seven funds were overweight property, compared to the median 9 per cent allocation, and seven were also overweight the median infrastructure allocation.
The most noticeable asset allocation difference was that the top performing funds were underweight both fixed income and cash relative to the average. Only two funds reported overweight positions in fixed income and three funds were overweight cash – all the rest were underweight.
On fees, the report said: “Contrary to expectation, the funds which charge a lower fee did not have any better (or worse) performance than those which charge a higher fee. One explanation for this is the additional charges incurred by a high fee option (such as active manager fees and investing higher fee asset classes) increased the relative return for these funds, justifying the additional expenses incurred.”
